Explanation Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions: Debit , all increase in assets, expenses and dividends, all decrease in liabilities, revenues and equities. Credit, all increase in liabilities, revenues, and equities, all decrease in assets, and expenses. Prepare journal entries for the given transaction as follows: August, 1 – Owner invested $6,500 cash and $33,500 of photography equipment in the exchange for common stock Date Account Title and Explanation Post Ref. Debit ($) Credit ($) August, 1 Cash 6,500 Photography equipment 33,500 Common Stock 40,000 (To record owner invested cash and equipment for stock) Table (1) Cash is an asset account, and it increases the value of assets by $6,500. Hence, debit the cash account for $6,500. Photography equipment is an asset account, and it increases the value of assets by $33,500. Hence, debit the photography equipment account for $33,500. Common stock is a component of equity, and it increases the value of equity by $40,000. Hence, credit the common stock account for $40,000. August, 2 – The Company paid $2,100 cash for an insurance policy covering the next 24 months. Date Account Title and Explanation Post Ref. Debit ($) Credit ($) August, 2 Prepaid insurance 2,100 Cash 2,100 (To record prepaid insurance paid in cash) Table (2) Prepaid insurance is an asset account, and it increases the value of assets by $2,100. Hence, debit the prepaid insurance account for $2,100. Cash is an asset account, and it decreases the value of assets by $2,100. Hence, credit the cash account for $2,100...

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ISBN: 9781260158625

Author: Wild

Publisher: MCG

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